Pound Gains From Six-Week Low Versus Dollar; Gilts DeclineNeal Armstrong
The pound strengthened from a six-week low against the dollar after an industry report showed U.K. home sellers raised asking prices to a record, adding to optimism Britain’s economy is improving.
Sterling advanced for the third time in four days versus the greenback after Bank of England Governor Mervyn King said in an interview broadcast yesterday that a “modest recovery” is underway, though “more needs to be done” to encourage growth. The dollar weakened against most of its 16 major peers before Federal Reserve Chairman Ben S. Bernanke testifies to Congress on Wednesday. U.K. government bonds declined for a second day.
“There’s a little bit of softness in the dollar versus the pound today,” said Daragh Maher, a London-based currency strategist at HSBC Holdings Plc. “There’s a bit of position squaring after the run we have seen and ahead of Bernanke this week, but the dollar remains a buy on dips. The Bank of England revised their growth outlook last week but it’s hardly the stuff of legends.”
The pound strengthened 0.4 percent to $1.5226 at 4:41 p.m. London time after declining to $1.5158 on May 17, the lowest level since April 4. The U.K. currency gained 0.1 percent to 84.51 pence per euro after depreciating to 85.17 pence on May 14, the weakest since April 25.
Prices sought by U.K. home sellers rose 2.1 percent in May to an average 249,841 pounds, taking the increase in the first five months of the year to 9.1 percent, property-website operator Rightmove Plc said in a report. London asking prices increased 3.3 percent to 509,870 pounds, also a record.
Britain has avoided some of the turmoil in Europe because the drop in the pound is stimulating exports, King said in the interview with Sky News television.
Asked whether the government’s plan to aid home buyers would fuel a bubble in house prices, he said values were 14 percent below their peak.
“Interest rates are low right across the world and that inevitably pushes up asset prices,” the BOE Governor said. U.K. house prices have been “remarkably stable for the last few years. That’s not a bad position to be in,” he said.
Sterling has weakened 2.4 percent this year, the second-worst performer after the yen among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 5 percent and the euro rose 2.1 percent.
The 10-year gilt yield climbed three basis points, or 0.03 percentage point, to 1.91 percent after increasing to 1.95 percent on May 15, the highest since April 15. The 1.75 percent bond maturing in September 2022 fell 0.25, or 2.50 pounds per 1,000-pound face amount, to 98.61.
The annual rate of consumer-price inflation fell to 2.6 percent last month from 2.8 percent in March, according to a Bloomberg News survey before the Office for National Statistics report tomorrow. The Bank of England is seeking to keep inflation below 2 percent.
U.K. gilts handed investors a loss of 1.8 percent this month through May 17, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds fell 0.6 percent and Treasuries slid 1.2 percent.